For hundreds of years, organizations have built themselves more or less along a military-style hierarchical model. It is only in the past 20 years that larger, successful organizations have begun to challenge that model. Financial 'wars' have forced organizations to flatten, become more agile and operate like the more autonomous special units of the military: Delta Force, Seals, AF SOF, etc. Anyone who has been a member of a special unit knows that there are different norms for interaction, and the officers are as much worker bees as the NCO and enlisted. As a result, the style of communication is more direct and two-way and the units are very flat in structure.
The next generation of business, in order to survive, must be more like the special units of the military. They must change tactics quickly, move from one strategic objective to the next, members must play multiple roles, and communication must be open and frank. There is more esprit de corps, more operating freedom, and greater rewards in light of the risks. So, what does this have to do with the post above?
Elite units create their own distinctive sub-cultures. These deviations from the norm work effectively because they are geared towards accomplishing a specific mission, not following procedures designed to preserve the larger force over the long run (although small units have their own unique iron-clad procedures for ensuring survival). When we talk about transparency and open communication, it is because the next generation mission is different than the traditional mission. In order for an organization to be agile, communication must flow from top to bottom and bottom to top with minimal interfering layers. So, not only do the organizational barriers to communication need to be eliminated or reduced, but the contextual limitations must change too. That means openness, transparency, honesty, and even respectful dissent.
So, when we discuss boundaries we need to juxtapose the special small unit/next generation culture with that of large units/traditional enterprise. Just as the special forces operator initially goes through basic training and tech school before specialized training, in a next generation culture we develop new operating and communication principles that run counter to how we have been traditionally trained in business. This makes it difficult to move back and forth between the two.
The question individuals must answer moving forward is to what culture will you commit? Can you straddle both? If you commit to the openness and agility of the small unit culture, then you may find yourself unwelcome or unable to adapt if you attempt to return to a more traditional business setting. Traditionalists will not thrive in a small unit setting, but may survive uncomfortably.
Ethics codes and the leader's role as arbiter of ethical conduct: A qualitative exploratory study
by
Stephen Curtis Elmore
© 2007 by Stephen C. Elmore
ALL RIGHTS RESERVED
Abstract
This qualitative exploratory study examined the published ethics codes of the 2006 Fortune 50 to determine if they address the leader's role as arbiter of ethical conduct. The requirements of corporate leaders to foster ethical organizational culture were also explored. Results indicate that only a small percentage of Fortune 50 ethics policies codified the leader's responsibility to establish and maintain an ethical organizational culture. This study illustrates specific codified organizational values, requisite behaviors, codified responsibilities, post employment commitment, and specific frameworks for ethical decision making. Emerging data reveal variations in document length and age and the prevalence of code introductions by organizational leaders. This study contributes to a better understanding of the leader's role in establishing an organization's basic ethical culture and expectations of normative group and individual behavior.
Codes of ethics are designed to limit legal responsibility, influence moral behavior, serve as a guide for management, establish an organization's public persona, and protect internal and external stakeholders (Langan, 1990; Langlois & Schlegelmilch, 1990; Marnburg, 2000; Wiley, 1995). However, empirical evidence indicates no correlation between the presence of an ethics code and ethical behavior within an organization (Metzger, Dalton, & Hill, 1993; Weaver, 2001) and no impact on the frequency of employee malfeasance (Marnburg, 2000). Weber (1993) found that organizations frequently lack the ability to implement consistent ethical frameworks, fail to recognize interrelationships required to institutionalize organizational ethics in business operations, and do not properly link organizational behavior and the implementation of ethics programs. Organizational ethicality is not derived from codes of conduct but rather from the predominant organizational culture (Coates, 2004).
An organization's culture results from the vision, core values, and principles of its leaders (Coates, 2004; Collier, 1998). Leaders create an ethical culture by communicating values at every organizational level, ensuring clarity, socializing norms, and providing models of appropriate individual character (Buckley, 2001; Pandey & Verma, 2005). Over time, from tradition and through daily leadership decisions, an organization's culture evolves and directly influences the ethical behavior of its members (Coates, 2004; Collier, 1998). Leaders who fail to foster an ethical organizational culture jeopardize stakeholder relationships and place the organization at risk (Goodpaster, Maines, & Weimerskirch, 2004; Pandey & Verma, 2005).
In recognition of the predominant influence of corporate leaders in establishing the ethical culture within their organizations, this study discerns whether existing codes address the leader's role as arbiter of ethical conduct. Corporate codes are also organization-specific and lack uniformity (Johnson, 2004). Each organization takes a unique approach to codifying standards of ethical conduct; therefore, this study also includes an examination of how codes of ethics characterized the leader's influence on fostering ethical culture.
Chapter 1 presents the research plan for a qualitative study to determine whether the leader's duty to foster an ethical culture is addressed in Fortune 50 codes of ethics. This chapter also discusses the primary drivers of ethical behavior within organizations and presents a framework of applicable ethical theory. The central phenomenon is examined, research questions identified, and a definition of terms provided to better understand specific language used in the research and research theory.
An organization's ethical orientation is often signified by the presence of a code and how it is developed, justified, implemented, disseminated, monitored, evaluated, and improved (Bernardi & LaCross, 2005; Buckley, 2001; Svensson, Wood, & Callaghan, 2004). However, limited research exists on ethics code development, dissemination and behavioral influence, and the existing studies are inconsistent in their conclusions (Marnburg, 2000; Weaver, 2001). Due to the uniqueness, complexity, and speed of business decisions (Harrington, 1991), leaders develop unique ethical arguments, options, and behaviors that become integrated into organizational culture and strategy (Geva, 2000; Pandey & Verma, 2005). Leaders, in developing strategies to foster sound ethical behavior, protect organizational reputation and maintain positive stakeholder relationships (Wiley, 1995). Stakeholders lacking information rely on the reputation of the organization as an indicator of reliability and trustworthiness (Chambers & Lacey, 1996), and organizational success depends on minimizing violations of that trust (Cragg, 2002; MacDonald, 2004).
The expression 'good ethics is good business' implies that an organization's survival depends on the ethical conduct of its members (Cressey & Moore, 1983). The presence of a code can indicate organizational commitment but does not guarantee ethical conduct or an ethical organizational culture (Svensson et al., 2004). An organization's philosophical approach to ethical and legal compliance has a greater impact on stakeholders and organizational behavior than does code content (Trevino, Weaver, Gibson, & Toffler, 1999).
Legislation cannot ensure organizational moral behavior because it is a product of organizational culture (Coates, 2004), and legislation primarily addresses the aftermath of ethical transgressions (Koestenbaum, Keys, & Weirich, 2005). Organizational activities lacking an ethical component are considered legal behaviors, but few purely legal behaviors exist because most activities have an ethical component (Schwartz, 2003). Individual ethical conduct within an organization is either appropriate or inappropriate based on the organization's culture (Horner, 1985), and a strong ethical culture can reduce the incidence of employee misconduct and malfeasance (Buckley, 2001; Langan, 1990; Pandey & Verma, 2005).
The recognition of culture's role in establishing normative ethical behavior may guide leaders in dissuading individuals from acts of ethical impropriety (Marnburg, 2000; Pandey & Verma, 2005). According to Wulfson (1998), ethical improprieties may include the following:
Conflicts of interest, petty theft, improper gifts, questionable billing practices, improper gathering of information from competitors, poor treatment of employees, sexual harassment, revealing confidential information, lying to supervisors, cheating on expense accounts, producing defective products, paying or accepting kickbacks and violating environmental laws. (p.15)
According to Wulfson, organizational cultures that embrace entitlement, retribution, self-protection, superciliousness, and adversarial challenges foster ethical improprieties and create ethical dilemmas.
The purpose of an organizational code of ethics is to aid employees in navigating moral dilemmas (Wiley, 1995). When oversight, surveillance, and statements of expected ethical conduct fail to ensure ethical employee behavior (Marnburg, 2000; Metzger et al., 1993), organizations require additional mechanisms, such as ethics officers or ombudspersons, ethics committees, and whistleblowers' hotlines (Wiley, 1995). Marnburg (2000) suggested that codes of ethics are frequently a restatement of existing organizational policies, norms, and governmental regulations. Codes of ethics, if they are to be effective, must originate from a specific philosophical basis to develop a clear set of ethical principles and key concepts, identify specific duties and performance criteria, and adhere to the ethical milieu from which they were derived (Haynes & Melville Jones, 1999).
Some leaders contend that a strong moral foundation is sufficient to ensure an ethical organizational culture, eliminating the need for a corporate code of ethics (Schudt, 2000). However, the literature indicates that the majority of corporate scandals since 2000 have been perpetrated by organizational leaders, the same individuals charged with creating, implementing, and maintaining corporate codes of ethics ('The Good, the Bad,' 2003). As a result, a new debate has emerged about leaders' accountability to the codes they create, their impact on corporate culture, and the general effectiveness of codes ('The Good, the Bad,' 2003; Pandey & Verma, 2005).
The Business Roundtable Institute for Corporate Ethics found in a 2004 survey of U.S. chief executive officers (CEOs) that top corporate ethics issues include restoring public confidence, effective management of stakeholder issues, accurate financial reporting, fair executive compensation, and leadership by ethical example (as cited in Fombrun & Foss, 2004). According to Fombrun and Foss, in the wake of scandals at Adelphia, Arthur Andersen, Enron, Global Crossing, HealthSouth, Tyco International, and Worldcom, 81% of CEOs in a 2004 study claimed to have increased their focus on corporate ethics by developing better communication and reporting, ethics hotlines, regulatory compliance, and increased oversight by corporate boards. Gates (2004) stated, 'More than reinventing ethics policies, programs, and penalties, American business must begin to do its part to instigate a behavior shift, a revolution of character, and a reintroduction of personal conscience, responsibility, and values' (p. 494). Unethical behaviors that organizational systems fail to address will continue (Axline, 1990; Coates, 2004; Trevino et al., 1999), so employee indoctrination of an organization's core values requires ongoing enculturation and monitoring by leaders (Buckley, 2001; Cressey & Moore, 1983; Svensson et al., 2004).
The breach of public trust by a number of large public companies since 2000 denotes a disturbing and continuing trend of an abandonment of acceptable business conduct in the United States and internationally (Leeds, 2003). Market efficiency is predicated on the public's trust because ethical transgressions carry broad significance and affect not only employees, shareholders, vendors, and creditors but also the U.S. and global economies (Angelidis & Ibrahim, 2004; Pandey & Verma, 2005). Ethical behavior contributes to an organization's ability to maintain its public image, community standing, and authenticity, as well as to provide a competitive advantage (Bernardi & LaCross, 2005; Buckley, 2001). Unethical behavior may result in fines and penalties associated with civil litigation or a criminal conviction, legal and audit fees, costs associated with corrective actions, the loss of customer base, a damaged reputation, low employee morale, increased government regulation, increased shareholder scrutiny, and loss of stakeholder confidence (Thomas, Schermerhorn, & Dienhart, 2004).
Ethical conduct of organizations and their members is not directly correlated to the presence of a corporate code of ethics because codes have a negligible impact on individual values and ethical behavior, organizational ethical conduct, or corporate culture (Leeds, 2003; Wood & Rimmer, 2003). Ethical compliance or deviation results from the leader-driven ideologies, policies, and practices that contribute to organizational culture (Conrad, 2003; Pandey & Verma, 2005). Organizational leaders establish an organization's culture by setting tone, being role models and evangelists, and surrounding themselves by like-minded individuals (Harrington, 1991; Pandey & Verma, 2005; Wood & Wood, 2003; Wulfson, 1998). Resultantly, the leader's role in fostering organizational culture is a significant factor in influencing individual and organizational ethical conduct (Malloy & Agarwal, 2003; Pandey & Verma, 2005).
This qualitative exploratory study examined whether Fortune 50 companies codify the leader's responsibility to foster an ethical corporate culture. It then characterized any findings based on the established theoretical framework. The results of this study may provide leaders information for future code development that could lessen the incidence of ethical transgressions within their organizations and the associated costs to stakeholders.
The purpose of this qualitative exploratory study was to examine the published ethics codes of Fortune 50 companies to determine if they address the responsibility of organizational leaders in fostering ethical corporate cultures. Further, based on the evolving data, findings were characterized, and an attempt to describe how ethics policies codify leadership responsibility was made. The population for this study was the top 50 U.S. corporations based on revenue as identified by Fortune magazine's 2006 ranking ('The Index,' 2006).
The literature addressing ethics code development reveals a lack of research on the leader's role in fostering an ethical organizational culture (Cressey & Moore, 1983). Through an exploratory investigation of Fortune 50 policies, this study sought to develop new concepts and definitions, and add to the existing literature on corporate ethics (Cooper & Schindler, 2003). A qualitative methodology allowed for an emerging process while still providing answers to questions about the central phenomenon (Creswell, 2002).
An ethical organizational culture is critical for success (Hunt, Wood, & Chonko, 1989). A weak or unethical culture results in deterioration of trust, and the employees who demonstrate personal integrity may leave the organization, further empowering the unethical behavior of members who remain (Buckley, 2001). Sound ethical behavior contributes directly to organizational reputation, and organizational standing in the community is essential in maintaining positive business relationships (Wiley, 1995). Organizational commitment by members is strongly correlated to value congruence, and research indicates that commitment is higher in organizations with ethical cultures (Trevino et al., 1999).
Goodpaster et al. (2004) asserted that laws can incentivize behavioral changes, but they cannot change ethical values or organizational culture, and no consensus exists among scholars as to the requisite content of ethics codes (Cressey & Moore, 1983). Ethics code development based on bureaucratic theory, for example, is established on the incorrect assumption that ethical behavior is rule-driven rather than culture- or leadership-driven (Marnburg, 2000). Culturally oriented code development, conversely, promotes more ethical decisions and behaviors by followers and yields more effective accountability systems (Buckley, 2001). Research supports that ethics program effectiveness is strongly correlated to ethical culture and leadership behavior (Pandey & Verma, 2005; Weaver, 2001).
This study contributes to the field of business ethics through its examination of corporate codes of ethics and how they address the impact and responsibility of organizational leaders in creating and promoting ethical cultures, the dominant factor in ethical employee behavior. Although research indicates that codes of ethics have a negligible impact on modifying behavior, influencing organizational culture, and gaining ethical compliance (Metzger et al., 1993), codes do establish an organization's basic ethical principles (Axline, 1990; Bernardi & LaCross, 2005) and expectations of normative group or individual behaviors (Marnburg, 2000). Code development is organization-specific due to variation in industry type, organizational culture, and operating environment (Wiley, 1995). As a result, little uniformity is present in code development except for attaining legislative compliance, such as, according to Wiley, the Foreign Corrupt Practices Act, the Federal Sentencing Guidelines for Organizations (FSGO) (Hatcher, 2003), and the Sarbanes-Oxley Act (SOA) ('The Good, the Bad,' 2003). Codes of ethics are the public declarations of organizational policy and intent (Coates, 2004), so the codification of an organization's expectations of its leaders provides a measure of accountability (Metzger et al., 1993).
Corporate culture is created by the words, policies, and actions of an organization's leadership, and the corresponding ethical climate determines how employees will address and overcome moral dilemmas (Pandey & Verma, 2005; Wulfson, 1998). While corporate codes of conduct are aimed at promoting ethical behavior, organizational culture may discourage it (Cressey & Moore, 1983). Because corporations are liable when they fail to implement policies and practices that mitigate unethical or illegal behavior (Geva, 2000), leaders have a fiduciary responsibility to foster an ethical organizational culture. This study contributes to the leadership field through the examination of whether and what codified requirements, implicit and explicit within the codes themselves, exist for leaders of the 50 largest corporations to develop ethically oriented cultures.
A qualitative exploratory design was used for the study. A qualitative design is used for exploratory investigations of existing documents, and exploration allows researchers to develop new concepts and create new definitions, adding to existing knowledge (Cooper & Schindler, 2003). Qualitative research is employed to answer questions about a central phenomenon while still allowing for an emerging process (Creswell, 2002). The literature revealed a lack of research on ethics code development as it relates to the leader's role in fostering an ethical culture (Cressey & Moore, 1983), but a random examination of 10 Fortune 50 ethics policies indicated that 4 contained specific language that addressed the central phenomenon. Organizational practices yet to be addressed by research were revealed through a qualitative exploration of Fortune 50 ethics policies.
The lack of empirical data addressing the codified responsibilities of leaders in fostering ethical organizational cultures presented several research challenges. First, the literature illustrated no universally applied baseline for code design from which to draw comparisons, making quantitative measurements problematic. A central phenomenon was described in this study because there is little existing research on the subject, necessitating a qualitative design (Creswell, 2002).
Second, the organization-specific and transient nature of ethics code design required a research method that allows for emerging data and methods. This is most appropriately addressed through an exploratory design (Creswell, 2002). Finally, interviews and surveys are highly effective at determining perception, but a published code of ethics presents the official position of an organization. While what is stated in a code may differ from actual practice, how organizational policy addresses the leader's role in fostering an ethical culture was investigated. According to Creswell, the use of public documents in qualitative research provides data that have been carefully developed by the study participants.
The published ethics codes of the 2006 Fortune 50 were examined in this qualitative exploratory study to determine if they addressed the responsibility of organizational leaders in fostering ethical corporate cultures. A census study of the entire population of 2006 Fortune 50 companies and nonbehavioral record analysis of the ethics policies available on the Internet was used to explore each policy for data applicable to the following two research questions:
R1: What, if any, are the codified requirements in ethics codes of corporate leaders to foster an ethical organizational culture?
R2: What are the differentiating characteristics of the codified requirements of corporate leaders to foster an ethical organizational culture?
A preliminary examination of the top 50 of the 2006 Fortune 500 websites indicated that all of the ranked companies had published codes of ethics or the equivalent, and 4 out of 10 codes examined specifically addressed leadership responsibilities. The preliminary data indicated that this study would produce data that addressed the two research questions.
Contradictory views exist as to the true nature of ethics. Buckley (2001) stated that ethics 'focuses on duty and the boundaries of right and wrong' (p. 13), while Fombrun and Foss (2004) declared, 'Ethics is not simply a matter of right and wrong, or a set of principles to be enshrined in a code of conduct and then forgotten' (p. 288). A foundation of theories and concepts is presented to increase understanding of the applicable theoretical perspectives in this study and how they apply to code development, leadership, and organizational culture.
Moral philosophy is the theoretical underpinning of ethical philosophy (Collier, 1998) as well the organizational norms that serve as the basis of ethical decision making (Mackenzie, 2004). Leaders and their corresponding ethical approach to moral dilemmas produce an organization's culture and its corresponding norms (Buckley, 2001). An organization's approach to ethical questions and regulatory compliance may be divided into behavioral-oriented or outcome-oriented philosophies (Geva, 2000; Schudt, 2000; Schwartz, 2003; Treviño & Brown, 2004; Wiley, 1995). This is a significant distinction in terms of the central phenomenon of this study.
Kohlberg's theory of cognitive moral development holds that individuals develop through a progressive series of cognitive stages that define their ethical decision-making processes (as cited in Treviño & Brown, 2004). The application of universal moral principles to ethical problem solving is problematic because there is inherent disagreement among scholars and practioners as to the applicability of specific lines of moral reasoning (Collier, 1998). Principle-based morality holds that moral reasoning is sufficient to cause an individual to act morally (Geva, 2000), whereas moral character theory holds that individuals must act on their convictions (Meyers, 2004). Whether moral decisions are based on principles or character, morally mature individuals realize that they can be held accountable for unintended harms (Haney, 2004).
An individual's moral reasoning is a function of the reference criteria he or she uses to address moral dilemmas (Harrington, 1991). Moral dilemmas can be categorized as uncertainty on a proper course of action or a lack of motivation to fulfil one's obligations (Geva, 2000). According to Geva, uncertainty may result in the following: a genuine ethical dilemma, a lack of clarity on a proper course of action despite the will to act ethically; a compliance issue, clarity on a proper course of action but difficulty in acting ethically; or a lack of moral vigilance, an acknowledgement of duty but a lack of will. The Kantian view of moral choice considers a moral subject to be responsive to categorical imperatives that guide moral judgment, while Habermas' theory of moral argumentation, discourse ethics, indicates that moral agents collectively determine morality and justice (Collier, 1998). A categorical imperative results when an individual's ethical decision becomes a universal law or code of conduct (Wiley, 1995).
Axline (1990) identified 12 criteria for ethical decision making. The decision-making process begins with complete and honest information about the dilemma. The ethical decision maker identifies affected stakeholders and formulates a response that is legal, fair, and in compliance with social norms and organizational standards.
According to Axline (1990), the decision is in alignment with organizational purpose, is sustainable, is acceptable to external and internal stakeholders, and accounts for associated risk factors. Transparency of the underlying motivations for a specific action and an acknowledgement of the decision maker's fiduciary responsibility to the organization exist. Finally, prior responses to a similar dilemma should accompany the implementation plan.
Ethical philosophy addresses moral obligations, social responsibility, and fairness (Wiley, 1995). Ethics is stated values or social norms that signify a lasting belief in a specific pattern of behavior or vision and are communicated through specific statements of values (Marnburg, 2000). Behavior can be considered ethical if no direct or indirect economic or legal consequences exist and if it is guided by one or more of the following moral principles (Geva, 2000; Schwartz, 2003; Wiley, 1995): Universalism, a deontological approach, is based on the appropriateness of an ethical decision (Schudt, 2000; Schwartz, 2003; Treviño & Brown, 2004). Utilitarianism, a teleological approach, is based on the desirability of the outcome (Buckley, 2001). Agent-centered ethical theory is based on the individual's character, attributes, and potential (Collier, 1998). Act-centered ethical theories, however, according to Collier, fail to consider individual motivations.
Universalism is a Kantian theory that indicates that the moral worth of an action should be based on the actor's intent rather than the consequences because they may not be understood at the time of the decision (Schwartz, 2003). Applied ethics presents the view that universally pluralistic moral principles exist that are immune to historical, cultural, or situational pretexts (Collier, 1998). 'The moral pluralist view claims that values, obligations, or moral principles are inherently diverse and cannot be reconciled into one harmonious scheme of morality' (Geva, 2000, p. 775). However, social-cognitive theory illustrates that individuals' perceptions of ethical conduct are influenced by their environment, personal bias, and organizational membership (Wood, Svensson, Singh, Carasco, & Callaghan, 2004).
Utilitarianism indicates that ethical decision must serve the greater good, protect individual rights, and seek due process and the protection and enlightenment of individuals (Wiley, 1995). Utilitarianism, according to Wiley, is divided into act utilitarianism, which deals with the specific action a person takes, and rule utilitarianism, which addresses the consistency of a person's actions in varying situations. Utilitarianism is based on the assumption that human beings are innately concerned with benevolence and the happiness of others and therefore justifies acts of corporate philanthropy (Schudt, 2000; Schwartz, 2003; Wiley, 1995). Utilitarianism is highly effective when applied to a small group setting because outcomes are more easily measured, and the population's ethical orientation is easier to verify (Buckley, 2001; Vitell et al., 2003). Utilitarianism, however, is far less effective in a large group setting because the extent of behavioral costs increases (Buckley, 2001).
Leadership philosophy carries great significance because a leader's disposition increases in influence in proportion to the leader's level of authority and power (Bergmann, 1999). Avolio, Bass, and Jung (1999) identified two principal leadership philosophies: transformational and transactional leadership. Transactional leaders tend to adopt teleological approaches because they measure the outcomes of behavior, while transformational leaders use deontological approaches because they focus on the ethical quality of an action (Smith & Hasnas, 1999).
A transformational style of leadership gains employee acceptance for organizational change through decisions that are transparent, consistent, reasonable, respectful, and worthy of the continued trust of employees (Coghlan & McKee, 2000; Pandey & Verma, 2005). A transformational leader displays enthusiasm and optimism and raises employees' confidence as well as inspires them to try harder (Bergmann, 1999). A transformational leader also challenges processes, inspires vision, empowers others to act, and provides a role model (Bass, 1990a).
A transactional leader, by contrast, expects specific employee behavior through a contractual exchange for a predetermined level of reward (Bass, 1990a). Bass considered transactional leadership to be a caretaker mentality and the antithesis of transformational leadership, and Bass (1990b, 2000) found transactional leadership to be pedestrian and narrowly focused on a few stakeholders. Bass (2000) recognized transformational leadership to be the preferred leadership model but also recognized that circumstances might dictate that a leader resort to transactional methods to meet the immediate demands of an organization. However, Pandey and Verma (2005) concluded that transformational leadership is strongly correlated to the development of an ethical organizational culture, while transactional leadership characteristics are generally more self-serving and result in low moral development.
An organization's culture results from the vision, core values, and principles of its leaders (Coates, 2004; Pandey & Verma, 2005) as well as the collective mores and shared values that guide the behavior of organizational members (Collier, 1998). An organization led by a transactional leader may be more outcome oriented in its ethical approach, while an organization led by a transformational leader may be more principle oriented (Pandey & Verma, 2005; Smith & Hasnas, 1999). Organizational culture also develops from a combination of societal influences, industry traditions, technology, and organizational structure (Collier, 1998), and the strength of organizational culture determines the level of influence over employee behavior, the level of harmony, the influence on values, and ethical decision making (Collier, 1998; Mackenzie, 2004).
The society in which an organization operates and draws members contributes to its ethical culture (Buckley, 2001; Wiley, 1995), but the transient nature of organizational membership, the presence of divergent values, and the grouping of ethical values also create a variety of ethical cultures within organizations (Buckley, 2001). New norms theory indicates that the effectiveness of ethical norms is correlated to the willingness of affected and nonaffected individuals to impose sanctions to enforce them (Mackenzie, 2004). Organizations and individuals commonly share the same basic ethical norms, such as honesty and respect for individual rights (Grossman, 2005; Mackenzie, 2004). However, a pluralist approach or ethical decision making based on moral relativism may result in rationalizations deemed unethical by some (Geva, 2000). Additionally, organizations are subject to more specific norms based on concepts of business ethics, corporate social responsibility, and protection of shareholders and stakeholders (Grossman, 2005; Mackenzie, 2004) and may act unethically even if their human agents are acting ethically (Schudt, 2000).
Chambers and Lacey (1996) found tangible costs associated with unethical behavior, and the obligation to achieve wealth maximization compels corporate decision makers to address ethical concerns. External stakeholders do not share the same ethical decision-making framework as internal stakeholders, but demands for accountability by external stakeholders can incentivize internal stakeholders to act ethically (Bernardi & LaCross, 2005; Buckley, 2001; Chambers & Lacey, 1996). Market prices may then reflect social ethical values, and the maximization of shareholder wealth resulting from unethical behavior can result in an indictment of those values (Chambers & Lacey, 1996).
There are five ethical modes: immoral, reactive, compliant, integrity, and totally aligned (Bernardi & LaCross, 2005). The immoral mode, according to Bernardi and LaCross, results from an organization's myopic focus on profit at the expense of stakeholders. The reactive mode stems from a need to comply with legal or legislative actions. The compliance mode results from an organization's need to maintain a positive public image. The integrity mode is a proactive state focused on all stakeholders. Finally, the totally aligned mode creates a corporate culture of responsibility and transparency. Examples of an integrity mode can be found in corporate social responsibility (Fombrun & Foss, 2004), an immoral mode in agency theory (Rodin, 2005), and a reactive mode in public choice theory (Thomas et al., 2004).
According to agency theory, the corporation exists to maximize profits for shareholders, principals, and managers. Agents have an ethical obligation to ensure shareholder value for the benefit of investors (Cragg, 2002; Hudson, 2005). This is a teleological approach characteristic of transactional leaders that limits an organization's ability to engage in altruistic behavior (Smith & Hasnas, 1999).
Agency theory indicates that any commitment to social responsibility in lieu of maximizing financial returns is a misappropriation of corporate resources (Rodin, 2005). Agency theory, according to Rodin, is an outcome-based philosophy that implies that contractual and fiduciary obligations constitute moral minimal obligations that exceed maximal obligations. Rodin explained that maximal moral obligations are derived from all other moral obligations such as service, charity, generosity, moral commitment, and integrity. Violations of maximal moral obligations are generally not punishable because noncompliance results in injury as opposed to victimization. Maximal moral obligations are neither universal nor compulsory because devotion to a specific set of virtues varies with each individual.
Most ethical dilemmas affecting businesses limit the decision-making ability of individuals who must act principally as organizational agents solely responsible for maximizing profit (Chakraborty et al., 2004; Smith & Hasnas, 1999). According to economist Friedman, leaders have a limited moral obligation to stakeholder groups, and as agents of corporate shareholders, they must manage assets to maximize returns (as cited in Rodin, 2005). Leaders of public corporations have a fiduciary responsibility to maximize shareholder wealth and have no right to use corporate assets for discretionary social goals outside their mandate (Mendez & Clark, 1996; Rodin, 2005; Wilcke, 2004). However, Wilcke rebutted that even a teleological executive may deem the organization's long-term financial viability to be linked to socially responsible acts and therefore have an obligation to allocate resources to activities that do not immediately contribute to shareholder value.
Public choice theory illustrates that there must be a legislative response to broad ethical crises (Thomas et al., 2004). Crisis-driven legislation created the Securities and Exchange Commission following the 1929 stock market crash, the Environmental Protection Agency following environmental issues in the 1960s, the Foreign Corrupt Practices Act following bribery scandals in the 1970s, and Federal Sentencing Guidelines for Organizations and Sarbanes-Oxley following the accounting scandals at the turn of the millennium. Public choice theory is teleological in its approach because it is outcome oriented (Buckley, 2001).
A definition of terms provides a grounded linguistic framework to understand better the foundational terminology used in the research and research theory.
Categorical imperative. A categorical imperative holds that individual responsibility, benevolence, and the elimination of egotism and self-deception that ensures the consideration of others constitute a universal law of behavior (Donaldson, 1992; Wiley, 1995).
Corporate governance. Corporate governance is the system of policies and procedures through which an organization is directed and controlled (MacDonald, 2004).
Discourse ethics. Discourse ethics is collective decision making that begins from dissimilar values and moral traditions and through a process of moral argumentation achieves ethical pluralism rather than relativism (Collier, 1998).
Ethical norm. An ethical norm exists when a group adopts and complies with a behavioral standard, but the norm only retains moral authority if it can be rejected or an individual can leave the group (Geva, 2000).
Ethical relativism. Ethical relativism is the determination of right and wrong by a relevant group, while situationally appropriate ethics is based on a contextually relevant shared system of values designed to direct the behavior of organizational members (Buckley, 2001).
Federal Sentencing Guidelines for Organizations (FSGO). Federal legislation passed in 1991 increased penalties for corporate misconduct while simultaneously reduced penalties for criminal acts if the organization had an established ethics program (Hatcher, 2003).
The Foreign Corrupt Practices Act of 1977 (FCPA). The act required publicly traded companies to establish internal control systems to hold organizational leaders accountable (Lamberton, Mihalek, & Smith, 2005).
Justice. Justice is fairness and the equal treatment of unequals (Wiley, 1995). Distributive justice is fairness in the allocation of organizational resources and the avoidance of unfavorable or inequitable outcomes, while procedural justice focuses on the perceived fairness and characteristics of a course of action (Weaver, 2001).
Moral agent. A moral agent is characterized by an appropriate mode of behavior, an appropriate mode of existence, and adherence to moral law (Schudt, 2000).
Ombudsperson. A person who provides organizational members an independent internal arbiter to monitor organizational behavior and avert breaches of ethical standards (Svensson et al., 2004).
Organizational culture. The varied, temporal, and subjective experience of organizational members that affects expectations, attitudes, and behaviors (Collier, 1998).
Stakeholder model of corporate responsibility. The stakeholder model of corporate responsibility suggests that organizational leaders must balance the legitimate rights of stakeholders, who include customers, suppliers, investors, and the local community or the public, with profits and creating shareholder wealth (Barker & Cobb, 2000).
Stakeholders. Primary stakeholders are those individuals or groups with a high level of mutual dependence on organizational behavior and decision making, whereas secondary stakeholders are influenced or affected by the welfare of an organization but are not directly involved in decision making (Cragg, 2002).
Universalism. Universalism is a Kantian deontological precept that judges the inherent universal morality of an act without regard to the consequences (Schwartz, 2003; Wiley, 1995).
Utilitarianism. Utilitarianism is a teleological precept that posits that individuals have a duty to consider the impact of their decisions on others and act for the greater good (Buckley, 2001; Schudt, 2000; Schwartz, 2003; Wiley, 1995).
Whistle-blowing. Whistle-blowing involves an employee report of alleged organizational malfeasance to ensure that incidents are formally addressed and corrected (Svensson et al., 2004).
For the purposes of this study, the assumption was that the ethics codes from Fortune 50 companies would provide sufficient data to answer the research questions. The Fortune 50 are the most successful, based on earnings, public companies ('The Index,' 2006) and therefore most likely to provide comprehensive and complex ethics policies. Fortune 50 companies are also more likely to be multinationals and incorporate a multicultural approach to organizational ethics, adding an additional level of complexity. While it was not assumed that the characterizations and conclusions drawn from this study would be universally applicable to all organizations, the assumption was made that enough commonality existed in corporate structures among other public companies to provide a significant degree of relevance.
The validity of this study was limited to a qualitative exploratory research method. This study was also limited by the variability of corporate ethics policies, the honest intent of the ethics policies, and the ability to generalize the results to other populations, especially those dissimilar from the target population (Creswell, 2002). Potential limitations, according to Creswell, include history and environmental factors that may cause policies to change and evolve.
This study was confined to surveying Fortune 50 ethics policies. Only the policy elements addressing the role of leaders in fostering ethical organizational culture were the focus. The ethics policies of the 2006 Fortune 50 companies available in the public domain were included in the study.
Chapter 1 presented the research plan for a qualitative study to determine whether Fortune 50 codes of ethics address the leader's duty to foster an ethical culture. Research shows no correlation between the presence of an ethics code and ethical behavior within an organization (Metzger et al., 1993; Weaver, 2001). Organizational culture rather than codes of conduct is the predominant influence on an organization's ethical conduct (Coates, 2004), and culture results from the vision, core values, and principles of its leaders (Coates, 2004; Collier, 1998). A conclusion of the study was that the leader's role is codified, so the specific elements in the code that described the leader's duty to foster an ethical culture was then characterized.
The significance of this study for the existing body of knowledge regarding the leader's influence on organizational culture and in fostering the ethical behavior of followers was described. The research questions were also identified. Chapter 2 will present a review of the literature surrounding the theoretical framework of this study to address the research questions properly.
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BSG Alliance rolls out new web brand and community
by T e s t on 2007-07-27 11:23 PM read 1961 times |
2007-07-27
Today we rolled out a wholly new vision for the BSG Alliance corporate web site and community. Steve Guengerich lead the effort with the assistance of a cast of thousands. Special thanks to the design team for the clean look and color scheme.
Of course, in Enterprise 2.0 fashion, expect we'll continue evolving the property, but until we do be sure to get involved and check out some of the highlights:
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Fantastic job! It looks great, and I look forward to seeing how the community evolves over the next days, months, and years!
-Katie